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Someone buying a unit in a condominium development is automatically a member of the homeowners association and required to pay regularly scheduled fees. Condo fees generally increase once a year, but a second increase could be allowed under certain circumstances. Homeowners associations are created under state laws; in California, condos are governed by the Davis-Stirling Common Interest Development Act.

Setting the Budget

A homeowners association elects a board of directors that is responsible for maintaining the common areas, hiring vendors and employees, enforcing the association’s rules and regulations, and setting up an annual budget. The budget projects expenses and income for the coming year. Expenses include maintaining common areas, as well as the cost of management companies. The board also should earmark approximately 10 percent of the operating budget as a reserve fund for repairs.

Calculating Fees

Income to cover the budget’s expenses comes from condo association fees, generally paid monthly by unit owners in the condominium development or building. Depending on the type of development, these fees may be calculated on the percentage of ownership related to the size of the units. The fees may increase from one budget year to the next to accommodate inflation and the rising cost of management, vendors, utilities and maintenance. A California condo board can increase the regular fees by up to 20 percent more than the preceding fiscal year.

Income Shortfall

Some unit owners may find themselves in financial trouble and stop paying their condo fees. The board must exercise its authority to collect money owed and can put a lien on units that are in arrears. In the meantime, one way or another, other unit owners are required to cover the shortfall to meet the association’s expenses. The bylaws of individual homeowners associations should outline ways that the association can stay solvent. For example, the board can cut back on such services as landscaping or security. The board can withdraw funds from its reserve, but reducing the reserve fund puts the association at risk in the event of an emergency. The board can impose a one-time special assessment, but it might have to do so again the following year. Providing state law and the association bylaws allow it, the board also can increase the annual fees in mid-year.

California Laws

California’s Davis-Stirling Act requires boards to impose fees high enough to run the association. It allows three ways of raising funds if the projected income amount will not be sufficient: a special assessment, an emergency assessment or borrowing from the reserves. The board can levy the special assessment if it is 5 percent or less of the current year’s budgeted expenses, but an assessment that is more than 5 percent must be approved by the membership. Davis-Stirling doesn’t specifically refer to mid-year fee hikes, but a California condo board is allowed to revise the budget, thus increasing the association members’ fees. The board must give 30 days notice to the membership and must keep the increase within the 20 percent limit. If the previous increase was 15 percent, for example, the revised budget can allow only 5 percent. So, technically, a condo board can raise the fees twice in one year.

About the Author

As a long-time newspaper reporter and staff writer, Kay Bosworth covered real estate development and business for publications in northern New Jersey. Her extensive career included serving as editor of a business education magazine for the McGraw-Hill Book Company. The Kentucky native earned a BA from Transylvania University in Lexington.